If you live in Tennessee, then you live in one of a handful of states that collects a state death tax. The estates of Tennessee residents, as well as the estates of nonresidents who own real estate and/or tangible personal property located in Tennessee, are subject to a state death tax under the following guidelines.
NOTE: State laws change frequently and the following information may not reflect recent changes. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.
Estate Tax vs. Inheritance Tax
While the Tennessee death tax is referred to as an "inheritance tax" in the Tennessee code, it is really an estate tax since it is collected based on the value of the estate (hence, an "estate tax"), not on who inherits the estate (an "inheritance tax"). The Tennessee code also provides for an "estate tax," which is a type of "pick up tax" that was tied to the amount of federal estate tax collected from the estates of decedents who died before 2005. If Congress fails to act on the federal estate tax before the end of 2012, then it will revert back to the laws that were in effect in 2001 and the state pick up tax will be resurrected. In this article the death tax currently collected under Tennessee law is referred to as an "inheritance tax."
When is an estate subject to the Tennessee inheritance tax?
For 2012 and prior years, the estate of a Tennessee resident may be subject to the Tennessee inheritance tax if the total gross estate exceeds $1,000,000.
For nonresidents of Tennessee, an estate may be subject to the Tennessee inheritance tax if it includes real estate and/or tangible personal property having a situs within the state of Tennessee and the gross estate exceeds $1,000,000.
Note: In May 2012, legislation was enacted which will phase out the Tennessee inheritance tax by 2016. See more on this below in the section titled "What is the future of the Tennessee inheritance tax?"
What Tennessee inheritance tax forms must be filed?
All estates with a gross value that exceeds $1,000,000 must file a Tennessee inheritance tax return, Form INH-301, even if no Tennessee inheritance tax will be due as a result of applicable deductions and exemptions.
Are transfers to a surviving spouse taxable?
Outright transfers to a surviving spouse are not taxable.
For married couples who have used AB Trust planning to reduce their federal estate tax bill, a Tennessee inheritance tax may be due on the B Trust after the first spouse's death due to the gap of $4,120,000 between the Tennessee exemption of $1,000,000 and the federal exemption of $5,120,000. Nonetheless, a married decedent's estate can make an election on Form INH-301 to treat property as marital deduction qualified terminable interest property ("QTIP") for purposes of calculating the Tennessee inheritance tax. Thus, married Tennessee residents can defer payment of both Tennessee and federal death taxes until after the death of the surviving spouse using ABC Trust planning.
When are the Tennessee inheritance tax return and tax payment due?
Form INH-301 must be filed and any inheritance tax due must be paid within nine months after the decedent's date of death unless an extension of time to file the return and pay the tax is granted. An extension of time to file Form INH-301 may be requested for up to one year by filing Form INH-304, Application for Extension of Time to File Inheritance Tax Return. Nonetheless, even if an extension is granted, it will not delay the time for payment of any inheritance tax that may be due.
Where is the Tennessee inheritance tax return filed?
Mail the Tennessee inheritance tax return, Form INH-301, and all other required forms to:
Tennessee Department of Revenue
Andrew Jackson State Office Building
500 Deaderick Street
Nashville, Tennessee 37242-0600
What are the Tennessee inheritance tax rates?
For 2012 and prior years, anything over the $1,000,000 Tennessee inheritance exemption is taxed at the following rates:
- First $40,000: 5.5%
- Next $40,000 - $240,000: 6.5%
- Next $240,000 - $440,000: 7.5%
- $440,000 and over: 9.5%
Where can I find additional information about Tennessee inheritance taxes?
For more information about Tennessee inheritance taxes and estate taxes, refer to the Tennessee Department of Revenue's Inheritance Tax webpage, Guide to Tennessee Inheritance and Estate Taxes, and Inheritance Tax Guide.
For assistance with Form INH-301 and Tennessee inheritance tax questions, call the Tennessee Department of Revenue toll free (in state only) at 800-342-1003 or 615-253-0600.
What is the future of the Tennessee inheritance tax?
In May 2012, Tennessee enacted legislation that will gradually phase out the Tennessee inheritance tax by 2016. Under the new law, the inheritance tax exemption will increase as follows from the current $1 million exemption until the tax is repealed on January 1, 2016:
- 2013 $1.25 million
- 2014 $2 million
- 2015 $5 million
- 2016 and after Tax is repealed
For information about the rules that apply to the estates of decedents who die in 2013, refer to Overview of Tennessee Inheritance Tax Laws for 2013.